Building boom vs. Crisis: Global analysis reveals surprising winners and losers

The construction industry in the global economic context: A comprehensive analysis of the current situation

The construction industry, a fundamental pillar of the global economy, currently presents itself in a complex and dynamic state. A global overview reveals a mosaic of diverse economic conditions, in which growth and challenges alternate and intertwine regionally. While some nations and continents are experiencing robust growth and are optimistic about the future, others are struggling with considerable difficulties and a noticeable downward trend.

A recurring theme across many developed economies is the current weakness of the housing sector. Traditionally a driving force of the construction industry, this sector is experiencing a period of stagnation or even decline in numerous countries. In contrast, infrastructure growth is often more resilient. Government investment programs, the urgent need to modernize outdated infrastructure, and the global drive for improved connectivity are propelling this sector forward.

The United States is currently experiencing a remarkable industrial boom. Fueled by ambitious government support programs and a relocation of production capacity, new factories and industrial plants are springing up there at a rapid pace. China, on the other hand, is navigating a more complex situation characterized by continued economic growth but also by an impending housing crisis. Japan is showing signs of a moderate economic recovery, while South Korea faces a short-term economic slowdown but remains optimistic about the long term.

Regardless of regional differences, many countries and regions share similar challenges. The pervasive shortage of skilled workers, noticeable in many sectors, is also a serious problem in the construction industry. Rising construction costs, driven by inflation, material shortages, and geopolitical uncertainties, are impacting the profitability of construction projects worldwide. The economic development of the construction industry is significantly influenced by government support programs, global economic cycles, and specific regional factors. Political decisions, technological innovations, and societal trends also play a crucial role in shaping the future landscape of this vital sector.

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• Housing construction collapse & infrastructure boom – The two faces of the construction industry in the EU
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Germany: Between lack of orders and glimmers of hope

The German construction industry is currently experiencing a period of economic contraction. After a challenging year, a slowdown in the decline in revenue is expected for the coming year, but a rapid recovery is not anticipated. A real revenue decline of approximately 3.5 percent is forecast for the current year, which is expected to lessen to just over 1 percent in the following year. Despite this real decline, nominal revenue reached considerable levels this year, underscoring the continued immense economic importance of the sector.

Sentiment in the German construction industry has recently shown a slight improvement, but remains subdued overall. This development could indicate that the downward trend is slowing and the sector may have reached a low point. However, an immediate and strong recovery is unlikely given the ongoing challenges. The slowing of the decline in revenue and the slight improvement in sentiment could be interpreted as tentative signs of stabilization, even though the German construction industry still faces a difficult road ahead.

Sector-specific analysis in Germany: Housing construction in crisis, civil engineering as a support.

Residential construction is proving to be the biggest problem child of the German construction industry. A significant real decline in revenue, in the double-digit percentage range, is expected for the current year, followed by a further decline next year. The number of completed apartments is expected to fall further, falling far short of the federal government's ambitious targets. The stated goal of 400,000 new apartments annually is becoming increasingly unattainable, highlighting the deep crisis in which the residential construction sector finds itself. A significant drop in building permits reinforces the pessimistic outlook for this segment and suggests continued weak performance.

The reasons for this predicament are numerous and complex. High construction and financing costs, coupled with rising interest rates, are making mortgage loans more expensive and rendering homeownership unaffordable for many. In addition, regulatory hurdles and lengthy approval processes are hampering residential construction. The combination of these factors is leading to a reluctance to invest and a significant slowdown in construction activity in the housing sector.

In contrast, the commercial construction sector presents a more nuanced picture. While building construction is also struggling with declining revenues and no significant improvement is expected for the coming year, civil engineering is experiencing considerable growth. This growth is primarily driven by substantial investments in infrastructure projects related to the energy and mobility transition. The expansion of railways, power lines, and broadband networks requires significant construction work and is generating high demand in civil engineering.

It is even expected that civil engineering will generate more revenue than commercial building construction for the first time next year. However, the weak overall economic situation and uncertainties in the manufacturing sector are weighing on commercial building construction. Investment restraint in commercial buildings and production facilities is leading to subdued demand in this segment.

Public construction saw moderate real revenue growth last year. However, stagnation is expected for the coming year. Last year's growth was driven by investments in transportation infrastructure and building renovations. Nevertheless, there is a significant backlog of investment in public infrastructure, amounting to hundreds of billions of euros. Financial constraints and bureaucratic hurdles are hindering the implementation of planned modernizations of schools, hospitals, and other public buildings. The anticipated stagnation next year is primarily due to these financial limitations and potential delays in new projects resulting from the tight budget situation.

Challenges and outlook for the German construction industry: Skilled worker shortage and slump in orders

A growing number of construction companies in Germany are reporting production bottlenecks due to a lack of orders. This percentage has increased steadily in recent years and has now reached a worrying level. This indicates weak demand in certain segments of the construction market, particularly in building construction. At the same time, the shortage of skilled workers remains one of the biggest challenges for the industry, especially in civil engineering. Despite the economic slowdown, more than half of all construction companies still report difficulties filling vacancies. The lack of qualified professionals is hindering the industry's performance and jeopardizing the timely completion of projects.

The number of insolvencies in the construction industry has also risen in recent months. This development reflects the difficult economic conditions under which many construction companies are operating. Rising costs, a lack of orders, and increasing competitive pressure are putting many companies under considerable strain. On a positive note, stable material prices are expected for the coming year. This could provide some relief for companies after the volatility of recent years. The combination of a lack of orders and a shortage of skilled workers presents a complex challenge. While the lack of orders indicates insufficient demand, the shortage of skilled workers could impair companies' ability to process existing orders or accept new ones, even if demand picks up again. The German construction industry faces the task of managing these opposing challenges while simultaneously shaping the structural transformation towards greater sustainability and digitalization.

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European Union: Heterogeneous development and subdued recovery

The economic situation of the construction industry in the European Union presents a mixed picture. While seasonally adjusted output in the eurozone construction sector has recently increased slightly, it has declined slightly across the EU as a whole. A decrease in European construction volume is expected for the past year, followed by a weak recovery next year. At the same time, labor costs have risen in the eurozone and across the EU. These data point to an overall subdued economic development for the construction sector in the EU, although the differences between the eurozone and the other member states must be taken into account. The EU construction industry is navigating a complex interplay of cyclical fluctuations, political influences, and structural challenges.

Sector-specific trends in the EU: Housing construction under pressure, infrastructure as a growth driver

Similar to Germany, a significant contraction in residential construction is expected across the EU, which is likely to continue into next year. This decline is due to high property prices, continued elevated interest rates, and high construction costs. In contrast, infrastructure projects are identified as a key growth driver, supported by EU recovery funds and national investments. The focus here is on digital infrastructure, the energy transition, and the expansion of transport networks. Non-residential construction also faces challenges but is expected to see renewed growth from next year onward, driven by publicly funded market segments and green building initiatives. The EU is increasingly emphasizing sustainable construction practices and promoting investment in environmentally friendly technologies and materials.

Challenges and opportunities in the EU: Skills shortage and rising house prices

A persistent labor shortage is reported across the EU. This is a structural problem stemming from an aging workforce and a lack of new talent. At the same time, prices for existing houses are rising again, which could make new construction projects more attractive in some regions. However, high new construction costs could negate this advantage. The performance of the construction industry varies considerably between Member States. For example, Germany and Spain continue to face challenges, while the Netherlands and Poland show stronger growth potential. Addressing the labor shortage and capitalizing on rising house prices could be crucial opportunities for the EU construction sector to improve its growth prospects. However, the ability to benefit from rising house prices depends on whether new construction costs can be controlled. The EU construction industry faces the challenge of strengthening its competitiveness, driving innovation, and contributing to the Union's ambitious climate targets.

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Europe (excluding the EU): Different dynamics in the United Kingdom, Switzerland and Norway

The United Kingdom is expected to experience average annual growth in construction activity in the coming years. This growth is projected to be driven by a low starting point, falling interest rates and inflation, and will extend to infrastructure, office, and residential construction. Challenges remain, including a shortage of skilled workers and rising costs, which will be exacerbated by Brexit. The UK is addressing the skills shortage and promoting investment in the construction industry through targeted measures.

In Switzerland, current indicators point to a slight increase in revenue in the construction sector. Residential construction is expected to grow next year, likely benefiting from lower interest rates. However, the industry faces challenges such as land scarcity, strict regulations, and high financing requirements. Switzerland prioritizes high-quality construction and sustainability, which may lead to higher construction costs but ensures the long-term value of properties.

Norway experienced a decline in the gross domestic product (GDP) of its construction sector last year, primarily driven by a weak housing market and a significant drop in new construction. However, investments in infrastructure projects and renewable energy continue. Signs of a recovery are expected for the coming year, potentially triggered by housing demand and a possible end to rising interest rates. Norway benefits from its natural resources and is increasing its investment in green technologies and sustainable infrastructure.

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United States of America: Boom in the industrial sector and massive infrastructure investments

The US construction industry is benefiting from robust economic growth. A key driver of this growth is the boom in the industrial sector, triggered by government initiatives. These laws have led to substantial investments in the construction of new manufacturing facilities, particularly in the areas of electric vehicles, solar equipment, and semiconductors. Furthermore, another infrastructure bill is channeling massive funds into infrastructure expansion. The US is experiencing a renaissance of industrial production and is investing heavily in its infrastructure to strengthen competitiveness and create jobs.

Sector-specific analysis in the USA: Industrial construction as a growth engine, residential construction poised for recovery

The industrial sector has seen a significant increase in construction output in recent years and now accounts for a substantial share of all construction output in the U.S. Further nominal growth is expected for the coming year, followed by stabilization at a high level. However, political uncertainties could affect further investment in this sector. Housing construction was hampered by high interest rates last year. However, there is hope for a recovery next year, as analysts anticipate interest rate cuts. Demand for housing is expected to continue rising due to population growth and urbanization. Infrastructure construction is benefiting from massive investments through the Infrastructure Act. These funds are flowing into projects in areas such as roads, bridges, public transportation, broadband, and more. The private sector is also involved in infrastructure projects. A strong increase in construction activity is particularly evident in the road and water sectors.

Challenges and opportunities in the USA: skills shortage and digital transformation

The US construction industry continues to face the challenge of a skilled labor shortage. A large number of contractors report difficulties recruiting qualified personnel. Rising material costs are also putting a strain on the sector. The need for digital transformation and the implementation of new technologies to increase efficiency present further challenges. However, significant opportunities exist for German manufacturers of building materials and equipment in the large and rapidly growing US market. The USA is an attractive market for innovative construction technologies and sustainable building materials.

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China: Growth despite real estate crisis and focus on green technologies

The Chinese construction industry has experienced remarkable growth in recent years, underscoring its importance to the Chinese economy. Ongoing urbanization continues to drive demand. The Chinese government places a strong emphasis on infrastructure development, particularly in the energy, transportation, and environmental sectors. China is investing heavily in its infrastructure to stimulate economic growth and improve the quality of life for its population.

Key trends and government initiatives in China: steel construction, prefabricated construction and green materials

The government actively promotes the use of steel structures, prefabricated buildings, and environmentally friendly materials to reduce CO2 emissions and increase efficiency. Significant investments are being made in expanding the high-speed rail network, which is slated to double in size in the coming years. Modular construction is also being promoted to lower labor costs and shorten construction times. China is investing in innovative building technologies and aims to be a leader in sustainable construction.

Challenges and risks in China: Real estate crisis and overcapacity

The ongoing real estate crisis, with high debt levels and declining demand, poses a significant challenge. Many project developers are facing bankruptcies and construction halts. The potential impact of trade and technology conflicts with other countries could also negatively affect the industry. Furthermore, concerns exist regarding overcapacity in key industries such as solar and electric vehicles, which could dampen demand for commercial and industrial buildings. The Chinese government is attempting to manage the real estate crisis while simultaneously maintaining economic growth.

Outlook for China: Uncertainties and growth potential

The Chinese economy achieved considerable overall growth last year, driven by industrial production. However, the outlook for the coming year is uncertain, with growth forecasts slightly lowered due to weak consumer demand and the ongoing housing crisis. Nevertheless, the construction industry is projected to experience average annual growth in the coming years, fueled by urbanization and infrastructure projects. While the Chinese construction industry remains a key driver of global economic growth, it faces significant challenges.

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Japan: Moderate recovery and investment in urban development and technology

The construction industry has contributed significantly to Japan's GDP in recent years. Average annual market growth is expected for the coming years. An increase in construction investment is anticipated for the current fiscal year. Japan is attempting to revive its economy after years of stagnation, and the construction industry plays a key role in this effort.

Key projects and investments in Japan: urban development, Expo 2025 and the semiconductor industry

Numerous urban development projects are planned and underway in Tokyo, including in key districts. Osaka is preparing for Expo 2025, leading to a surge in investment in the city. Major investments in semiconductor projects are planned in the Kyushu and Hokkaido regions. Investments are also being made in logistics and data centers. Japan is focusing on technological innovation and seeking to strengthen its position in key industries such as semiconductor manufacturing.

Key challenges in Japan: aging workforce and rising land prices

The Japanese construction industry faces challenges such as an aging workforce, rising land prices, and the need to modernize aging infrastructure. Furthermore, Japan has strict building standards, particularly regarding earthquake safety. Demographic change and aging infrastructure pose significant challenges for Japan, which also affect the construction industry.

Outlook for Japan: Slow recovery and focus on modernization

The market size of the Japanese construction industry is estimated at several hundred billion US dollars for the coming years. Overall economic growth is expected for the next fiscal year. While value added in the construction sector declined this year, investment appears to be picking up. The Japanese construction industry is in a phase of slow recovery, focusing on modernizing infrastructure and adapting to demographic changes.

South Korea: Short-term contraction, long-term growth potential

The South Korean construction industry is expected to experience a real decline in output in the coming years, indicating a current slowdown. Furthermore, the number of building permits issued has decreased, suggesting a weaker pipeline of future projects. Rising construction costs and increasing bankruptcies among construction companies reflect the challenging economic conditions. South Korea is grappling with cyclical headwinds and structural problems in its construction sector.

Sector-specific challenges and trends in South Korea: Residential construction weak, overseas construction strong

The residential construction sector is showing weakness and is a major contributor to the overall decline. However, Korean construction companies are very successful abroad, securing significant contracts, particularly in the Middle East. The government is focusing on the semiconductor industry and renewable energy projects, which could potentially lead to construction opportunities in these sectors. South Korea is relying on its export-oriented construction industry and investing in future technologies such as semiconductors and renewable energy.

Long-term growth potential in South Korea: semiconductor industry and infrastructure

The total market size is estimated at a three-digit billion-dollar figure in US dollars, with a projected average annual growth rate of over four percent. This anticipated growth is supported by investments in the semiconductor industry and infrastructure. The government aims to achieve a 10 percent global market share in system semiconductors by 2030. Despite short-term challenges, South Korea is optimistic about the future and relies on innovation and technological advancements as growth drivers for the construction industry.

Comparative analysis of the economic situation: similarities and differences

A direct comparison of key growth indicators reveals significant differences and similarities. Housing construction is struggling in many developed economies, while the infrastructure sector is often more stable or growing. The US stands out with a strong boom in the industrial sector. Despite a housing crisis, China continues to experience growth in the construction sector. South Korea is experiencing a short-term contraction but remains optimistic about the long term. Japan is showing a moderate but steady recovery. The UK appears to be more resilient than many EU countries. Common challenges such as skills shortages and rising costs are present in several regions. Government support programs and global economic factors significantly influence regional construction markets. The global construction industry is characterized by complex regional dynamics and global trends.

Transformation and opportunities in a changing world

The global construction industry is in a period of transition. While some regions are benefiting from strong economic growth and targeted government investment, others face significant challenges, particularly in the housing sector. Infrastructure construction is proving to be a stabilizing factor in many regions. The industry's ability to manage the skills shortage, control rising costs, and capitalize on the opportunities of digital transformation will be crucial for its future development. The diverse regional dynamics reflect the complex interplay between global economic trends and local specificities. In the long term, technological advancements and sustainability initiatives offer significant opportunities for the construction industry worldwide. The industry faces the challenge of adapting to a changing world while maintaining its role as an engine of economic growth and a shaper of the built environment. The future of the construction industry will be defined by innovation, sustainability, and the ability to address global challenges while simultaneously meeting local needs.

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